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Office of Councilmember David A. Catania For Immediate Release: May 11, 2005 Contact Information: CATANIA PROVES STADIUM LAND COST ESTIMATE A SHAMWASHINGTON, D.C. - After weeks of careful analysis, D.C. Councilmember David Catania (At-Large) detailed his concerns with the stadium land cost re-estimate issued by Chief Financial Officer Natwar Gandhi on April 25, 2005. In a 5-page letter dated May 11, 2005, Catania insists that the CFO's report fails to comply with legal requirements set forth late last year by the Council and grossly undervalues properties that the District must purchase before construction may commence on the proposed South Capitol Street site. Dr. Gandhi's $161.3 million figure for land and infrastructure costs is a "complete contrivance", according to Catania, deliberately coming in just under the $165 million cap imposed by the Council. Catania points to the fact that many of the "recent" land sales used to estimate the cost occurred almost five years ago. Councilmember Catania wrote, "I am left guessing why you would submit a Report to the Council suggesting that the District should rely on sales information that is on average over three years old." The report submitted by the CFO warns that the study "may not be relied upon as an appraisal of the [land parcels'] market value", despite the law's requirement that each parcel of land be appraised individually. If the CFO performs his duties according to the law in the coming days, Catania expects land and infrastructure costs to climb well above $165 million, at which point the Mayor, Council, and Major League Baseball must consider an alternate site. While Catania prefers performing further upgrades to RFK Stadium, the most likely alternative is the grounds just north of that facility, offering comparable Anacostia River access and better views of the Capitol. The full text of Councilmember Catania's letter and much of the CFO's report may be viewed by following the link to Baseball Stadium Financing at www.davidcatania.com. For more information, please contact the Office of Councilmember David Catania by calling 202-724-7772. COUNCIL OF THE DISTRICT OF COLUMBIA May 11, 2005 Dr. Natwar M. Gandhi Dear Dr. Gandhi: In your April 25, 2005 letter to Chairman Linda Cropp, you claim to answer each of the questions raised by Councilmembers regarding the performance of your duties under the Private or Alternative Stadium Financing and Cost Trigger Emergency Act of 2004 (the Act). Contrary to your position that you have reviewed “all issues raised by the Council,” in my judgment, you have failed to fulfill your responsibilities under the Act. Under the Act, if the total costs of land acquisition, environmental remediation, legal expenses, infrastructure and transportation exceed $165 million, the proposed N Street SE site would be deemed financially unavailable as a location for the proposed baseball stadium. By your own admission, you rely solely on the Deloitte Report (Report) as the basis for fulfilling your responsibilities under the Act. I believe the Report substantially underestimates the cost of each of the above-mentioned activities. For the purposes of this letter, I will focus exclusively on one of the shortcomings of the Report: its failure to re-estimate the cost of land acquisition consistent with the provisions of the Act. The Act specifically mandates that the land acquisition costs include “one separate appraisal of each parcel of land to be acquired.”1 However, the Report does not contain a single appraisal of any of the 63 parcels of land to be acquired. Rather, according to the Report, “market value is estimated by comparison of the Private Property to similar properties that have sold recently, or for which offers to purchase have been made.”2 Based on these “recent” sales, the Report calculates a cost per square foot and applies that cost across the board to the respective properties. Next, the Report purports to adjust the value of each site based on certain elements: conditions of sale, time, location, access and visibility and development timing. Incredibly, nowhere in the Report does it describe how these various adjustments are made with respect to each individual property. The distinction between what the Act requires and what the Report provides is significant. By requiring “separate appraisals of each parcel of land”, the Council intended to receive a meaningful estimate of land acquisition costs. In the absence of these separate appraisals, your Report – by its own admission – does not accomplish this task. According to the Executive Summary contained within Appendix A of the Report:
In your April 25, 2005 letter to Chairman Cropp, you concede “it would be inappropriate to use the report for negotiating or setting market value on a parcel-by-parcel basis.”4 The Act is unambiguous in its requirement for separate appraisals. The Report simply ignores this mandate. Rather, your Report purports to represent an “interim step,” which “may not be relied upon as an appraisal of the market value.” How much confidence should I have in a Report that admonishes me not to rely upon it? Why not simply conduct the separate appraisals as instructed under the Act? Perhaps the answer to my question can be found in your April 25, 2005 letter where you lament the “complexity of appraisal process” as your justification for simply conducting an “aggregate cost estimate.” Yet, in the very next paragraph of your letter, you state that the “Office of Property Management is currently conducting an appraisal of each of the parcels that will be used in the negotiations with owners.”5 Presumably the Office of Property Management confronts the same barriers, as does the Chief Financial Officer, in the performance of its duties. Why is it that the Office of Property Management is able to conduct a separate appraisal of each parcel of land and the Chief Financial Officer is not? Certainly your Office’s FY2005 operating budget, which exceeds $107 million, is adequate to perform the simple task of individually valuing 63 individual pieces of property. Even assuming that your Report meets the requirements of the law, which it clearly does not, it cannot reasonably be relied upon as an accurate tool in determining the acquisition costs of the land at issue. First, as previously mentioned, the Report plainly states that it “may not be relied upon as an appraisal of the market value.” Second, even if the Report did not disclaim itself, a cursory review of the assumptions upon which it is based would have to inspire the same stipulation. The Report attempts to establish an aggregate land acquisition cost based on 13 separate “recent” sales of property in Near Southeast and Northeast Washington (Attachment 1).6 Incredibly, 7 of the 13 parcels included in Report were sold between February 2000 and January 2002. As such, it becomes hard to argue that these sales should be characterized as “recent” for purposes of determining present market value. An astonishing 30% of the 13 land sales relied upon by the Report as “recent” occurred in 2000. Only 3 of the land sales relied upon by your Report occurred in 2004. In your capacity as the Chief Financial Officer, you have seen the dramatic rise of real property assessments in the District of Columbia over the past five years. Therefore, I am left guessing why you would submit a Report to the Council suggesting that the District should rely on sales information that is on average over three years old. Your Report is silent as to how years of market forces will be suspended as the District attempts to purchase these 63 parcels in today’s environment. If relying on out-dated sales information were not bad enough, your Report reaches certain conclusions that even the data contained therein do not support. Your Report claims that the land can be acquired for a blended rate of $133 per square foot ($19/SF-FAR x 7 FAR = $133).7 However, if one were to average the sales data for the 13 parcels relied upon by your Report, a much higher acquisition price actually results. Specifically, the average sale price per square foot is $152.23 for commercial property and $159.50 for residential property, respectively. Assuming, as the Report does, 43% commercial use and 57% residential use, the blended cost per square foot to acquire the necessary land should be $156.38 per square foot. Nonetheless, without any property specific analysis, your Report leaps to the conclusion that based on the above sales data, it is “reasonable” to believe that we can acquire the property at issue for $133 per square foot, which is 17.6 percent less than the actual sales listed in their analysis. Incredibly, your efforts to discount the actual land acquisition costs do not stop there. Your Report further reduces the amount that you believe that it will cost to acquire this land by applying certain adjustments, albeit without any specificity at all. Your Report ultimately claims that the property at issue has a net market value of $73,682,599. When you divide this figure by 602,612 square feet, which is the size of the site to be acquired, you obtain a price per square foot of $122.27. You offer the creative excuse that the District will be able to subtract, among other things, the demolition costs from the amount that it will pay in compensation. It really is difficult to imagine a more absurd notion! As I mentioned above, of the 13 pieces of property contained in your Report’s analysis, only 3 sales occurred in 2004. Using the sales data contained in the Report for these three parcels of land yields an acquisition cost for commercial property of $161.21 per square foot8 and $179.27 per square foot for residential property, respectively. As such, your Report’s sales data from 2004 would yield a blended acquisition cost of $171.50 per square foot and a total acquisition cost of $103,347,950 for the land at issue.9 This adjustment alone would increase the cost of acquiring the land by nearly $30 million over your Report’s estimate. Thus, relying on your Report’s 2004 sales data, the cost to the District for land, infrastructure and transportation costs could exceed $190 million. This figure is well above the $165 million mark established by the Act to make the site financially unavailable. I have attached an analysis of recent Near Southeast sales, which supports my position that you have dramatically underestimated the cost of acquiring the property at issue (Attachment 2). The attachment contains 25 sales occurring between January 2002 and February 2005.10 All of the sales occurred in the Old City I Neighborhood, Subneighborhood E, which is the actual Subneighborhood of all the properties affected by the proposed new baseball stadium. The highest and best value of most of these properties is as developable land. After compiling the data for each transaction in chronological order, all sales for each year were added and then divided by the total Floor Area Ratio (FAR) available under the zoning for the parcels, thus yielding a weighted average price per year for property sales. In this way, larger property transaction account for the majority of the average, thus buffering out large variations in price per FAR foot that can be found from transaction to transaction, regardless of size. The zoning in many of these transactions is different, reflecting the mixture of commercial, residential, and light industrial uses prevalent in the area, although the larger transactions are in C3C zoned land. The mixture of residential and commercial zoning mirrors the commercial and residential uses that complement each other in CR zoning. For the sales transactions included in Attachment 2, the weighted average price/FAR foot sold is $25.86 in 2002, $121.06 in 2003, $43.00 in 2004, and $55.09 in 2005. Notwithstanding this sales data, you maintain that the District will be able to acquire the property at issue for an average of $17.47 per FAR/foot.11 Even your own Report doesn’t support this contention. Twelve of the 13 sales contained in your Report involved a sale price of $18.75 per FAR/foot or higher. Incidentally, if the District had to purchase this property at even $18.75 per FAR/foot, the cost to the District would exceed the $165 million mark for all items. Based on all the data I have reviewed, I believe your figure is a complete contrivance. You have failed to perform “one separate appraisal of each parcel of land” as the Act requires. Alternatively, you have put forth a study that purports to fulfill your duties under the Act, which itself claims should “not be relied upon as an appraisal of the market value.” I would strongly suggest that you perform your duties consistent with the Act and in good faith. Sincerely, 1. Private or Alternative Stadium Financing and Cost Trigger Emergency Act of 2004 , Section 3(a) reads as follows:
2. See Deloitte, Land Acquisition Cost Study, March 22, 2005. Executive Summary, Appendix A, page 57. 3. See Deloitte, Land Acquisition Cost Study, March 22, 2005. Executive Summary, Appendix A: “Intended Use of the Study,” page 4. 4. April 25, 2005 letter, page 3. 5. April 25, 2005 letter, page 3. 6. See Deloitte, Appendix A, Page 60. 7. See Deloitte, Appendix A, Page 58. 8. The estimate of $161.21 per square foot of commercial property is the result of averaging two pieces of property. One located at 1100 S. Capitol, S.E., which sold in July 2004 at $197.06 per square foot. The other piece of property is located on 40 Patterson Street, N.E., which sold in January 2004 for $125.36 per square foot. I included the Patterson Street, N.E. property even though it was hard to understand why a sale near New York Avenue, N.E. would be an appropriate comparable for land acquisition near the Navy Yard on the Anacostia River. 9. 602,612 square feet x $171.50 = $103,347,950. 10. Negotiations for the most recent sales likely began long before the baseball stadium was sited in the neighborhood. Following the transaction dated January 11, 2005, the Washington Times quoted the developer as follows: “We had it under contract before baseball happened.” Jim McElhatton, “Firm Snaps Up Lots in SE,” The Washington Times, April 8, 2005, page B01. 11. The total FAR is calculated by multiplying the 602,612 square feet to be purchased by 7.0 FAR, which is the highest and best use of the subject property given the current CG/CR zoning. This calculation yields 4,218,284 FAR. Your interpretation of your Report data suggests a proposed value of the site is $73,682,599. This figure divided by 4,218,284 FAR yields an average of $17.47 per FAR/foot. See Deloitte, Land Acquisition Cost Study, March 22, 2005. Executive Summary, page 8. ATTACHMENT 1: LAND SALES SUMMARY TABLEATTACHMENT 2. "Recent Near Southeast Sales Comparables" |
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